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A woman walks past an Aeropostale store in Times Square in New York on July 27. (ANDREW BURTON/REUTERS)
A woman walks past an Aeropostale store in Times Square in New York on July 27. (ANDREW BURTON/REUTERS)

Eye on Equities

Aeropostale shares poised for comeback, analyst says Add to ...

Shares of Aeropostale Inc. are back in fashion.

RBC Dominion Securities analyst Howard Tubin raised his rating on the U.S. teen apparel retailer to “outperform” now that management has made its merchandise assortments more appealing, and is expecting a better back-to-school season.

The company this month also introduced 15-year-old Dark Shadows star and fashionista Chloe Grace Moretz as its first celebrity brand ambassador. The campaign begins with the fall back-to-school season and continues through spring of next year.

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“We continue to view the Aeropostale brand as meaningful in the teen space,” Mr. Tubin said Monday in a report. This chain competes against retail names like Abercrombie & Fitch, Gap Inc., Urban Outfitters and American Eagle Outfitters.

“We are now comfortable valuing the company on its earnings potential rather than our estimates for the coming year.”

Aeropostale’s balance sheet remains solid with cash and investments of $202.6-million (U.S.) and no debt as of the end of the first quarter, he added.

“Fundamental performance began to suffer during the fall 2010 season due to an assortment that didn’t resonate with shoppers coupled with a retail environment that was aggressively promotional,” Mr. Tubin wrote.

Business remained challenging throughout 2011, with margins under additional pressure due to rising costs for raw materials like cotton, he said. Management, however, introduced several key initiatives this year, including more innovative ways to communicate with the target customer and investing in infrastructure and technology.

“We started to see these initiatives begin to pay off this spring as management did a good job incorporating the ‘Festival-Chic’ theme into their assortments,” the analyst said.

Upside: Mr. Tubin also raised his one-year target to $30 a share from $21.

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Barrick Gold Corp.

The gold miner’s new strategy is to abandon “nearly its entire development portfolio in favour of focusing on a smaller, more profitable platform,” said CIBC World Markets analyst Alec Kodatsky. “The economic rationale is sound, but leaves Barrick a much different looking company.”

Downside: He reduced his one-year target by $6 to $57 a share, and maintained an “sector perform” rating.

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Canadian Oil Sands Ltd.

The largest owner of the Syncrude Canada oilsands mine has warned to expect a significant cash reduction, and rise in net debt by the end of 2014. Its lower 2012 production outlook “still looks ambitious,” said Canaccord Genuity analyst Phil Skolnick.

Downside: He cut his one-year target by $1 (Canadian) a share to $23, and maintained his “hold” rating.

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Avigilon Corp.

Versant Partners analyst Tim Liston initiated coverage on the provider of video surveillance software and cameras with a “buy” recommendation. The management team has grown revenue from $5.5-million in the first quarter of fiscal 2010 to $18.9-million in the fourth quarter of 2011 through organic growth, he noted

Upside: He has a one-year target of $8.75 a share.

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Glentel Inc.

Canaccord Genuity analyst Derek Dley expects margins at the Canadian retailer of wireless devices to “remain under pressure as consumers continue to shift to more value-based contracts.” Its U.S. division is also actively working to mitigate effects of the high-promotional environment, he added.

Downside: He cut his one-year target by $2 share to $15, but maintained his “buy” rating.

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